2019-01-11 / Business

Upgrades needed to raise rent for remaining vacant office space

Contributed by Crystal Baker Research Coordinator, South Carolina

Key Takeaways

With no significant construction in the Columbia pipeline, vacancy rates are expected to continue to decline.

Because the available vacant space is of lower quality, overall weighted asking rental rates are predicted to fall.

2018 Market Recap

The overall market vacancy rate decreased from 11.65% during the fourth quarter of last year to 10.81% during the fourth quarter of 2018, due to the delivery of one occupied build-to-suit suburban office building. The office market also absorbed 198,068 square feet during 2018. The Class A quoted rental rates are lower than they were one year ago due to the lack of quality Class A spaces remaining; however, the overall average market rental rates have risen from $16.73 per square foot during the fourth quarter of last year to $17.31 per square foot this year.

Market Conditions

The Columbia office market has approximately 16.21 million square feet within eight submarkets. While there are no buildings currently under construction within the market, one 30,000-square-foot office delivered during the fourth quarter of 2018; however, three buildings are proposed that, if completed, will add 105,500 square feet of offices in Columbia. The Columbia market activity was steady during the fourth quarter of 2018. The overall net absorption was 35,355 square feet and, from the third quarter of 2018, the market vacancy dropped five basis points to 10.62% this quarter. The overall average weighted rental rate in Columbia was $17.31 per square foot and the Class A average weighted rental rate was $20.68 per square foot.

Columbia Business District (CBD)

The Columbia Central Business District has 97 buildings totaling 5.69 million square feet within the market. The central business district vacancy rate remained stable from the third quarter to the fourth quarter of this year, only varying by 19 basis points. During the fourth quarter of 2018, the downtown vacancy rate was 10.11% and the office market posted a net negative absorption of 10,902 square feet. However, Class A vacancy is considerably lower, down from 9.54% during the third quarter to 8.38% this quarter and Class A offices also absorbed 2,706 square feet this quarter.

The average weighted rental rates have been fluctuating from quarter to quarter, and the downtown rental rates rose slightly from $20.52 per square foot during the third quarter of this year to $20.72 per square foot this quarter.

Suburban

The Columbia suburban market consists of 226 buildings totaling 10.52 million square feet. Office build-to-suit construction completed in the Cayce West Columbia at 100 Corporate Boulevard submarket, adding a 30,000- square-foot office building. Within the suburban office submarkets, 46,257 square feet of office space were absorbed this quarter. The suburban office market vacancy rate dropped from 11.58% last quarter to 10.90% during the fourth quarter of 2018; however, approximately 1.15 million square feet of suburban office space are still available in Columbia, mostly in the St. Andrews and Northeast Columbia submarkets. The average weighted rental rate for the remaining suburban office space rose to $15.98 per square foot this quarter, 5.76% higher than the average suburban rental rate during the third quarter of this year.

Sales

JOHNCO, LP purchased a 36,000-squarefoot Class B medical office building for $9.5 million, located at 121 Park Central Drive in North Columbia.

Huger Street Properties LLC purchased a 32,964-square-foot Class B office building located at 508 Hampton Street, within the central business district, for $3.5 million.

Strom Law Firm purchased a 24,138-squarefoot office building located at 6923 North Trenholm Road in Columbia.

204 Caughman Farm Lane, within the Cherokee Bend Office Park in Lexington, is a 22,000-square-foot office building purchased for $1.5 million by Iv2 Properties, LLC.

PRD Owner, LLC purchased a 10,030-squarefoot office building at 621 Chatham Avenue in Columbia.

Office-Using Employment

Office-using employment is those jobs related to the professional and business services, financial activities and information sectors. According to the most recent October 2018 data from the Bureau of Labor Statistics, Columbia office-using employment totals are still relatively high at 399,900 employees, however, it has dropped since its peak in July of 2018. Compared to one year ago, there were 100 fewer office-using jobs recorded within the Columbia Metro Statistical Area (MSA) during October of 2018; however, there have been 5,400 total jobs added to the Columbia market. Also, the unemployment rate continues to steadily decrease quarter-over-quarter, and, as of September 2018, the unemployment rate in Columbia was 3.2%, the lowest it has been in 10 years.

Market Forecast

Throughout 2018, market rental rates in Columbia have fluctuated based upon the quality of the office space remaining. With no significant new construction planned for the Columbia office market and owners hesitant to build due to the rise of construction costs, unless the remaining office space is upgraded or upgraded space becomes available, rental rates are expected to stabilize in the next few quarters while the vacancy rate will continue to decline. Absorption is expected to be positive into 2019 as the remaining office spaces are leased; the Columbia market may begin to see owners compete by offering concessions and upgrades to office suites in order to draw tenants to their buildings. With a positive economic climate and low unemployment rates in the Columbia region, office activity is expected to be positive in the coming quarters.

For additional commercial real estate news, visit www2.colliers.com.

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